$5-trillion question: Can Modi hit his economic target?
● One hundred trillion rupees (US$1.4 trillion) for highways, railways, airports, waterways, crop storage and digital infrastructure; 20 million new houses; 125,000 kilometres of roads; a reduction in fuel imports by 5-6 trillion rupees as solar power and e-vehicles take hold … the Indian government has a very ambitious to-do list.
If all of Prime Minister Narendra Modi’s plans bear fruit, the size of the Indian economy will increase to $5 trillion by the time his second term ends in 2023, compared with about $2.75 trillion now.
Investment that promotes consumption and jobs is at the heart of the economic vision of the administration led by the Bharatiya Janata Party (BJP). At the same time, it hopes to unshackle micro, small and medium enterprises (MSME) by carrying out labour law reforms. It also aims to emulate the East Asian model of savings, investment and export-led growth that have helped Singapore, Malaysia and Thailand and others to improve their position.
A document titled Economic Survey 2018-19, presented to Parliament before the fiscal 2019-20 budget was tabled last month, sets out a clear roadmap for how New Delhi intends to achieve its $5-trillion gross domestic product (GDP) target. It identifies a “virtuous cycle” of savings, investment and exports and emphasises private investment to push demand, capacity, labour productivity and job creation.
According to the survey, the government will differentiate between new MSMEs and “dwarfs” — small enterprises that are more than 10 years old but still employ fewer than 100 people — by offering the former more incentives to achieve greater profits, job creation and increased productivity.
It notes that “dwarf” businesses account for about half of all manufacturing activity in the country but their contribution to employment is only 14% and productivity just 8%. Many have simply stopped growing.
The incentives for MSMEs will be subject to a sunset clause after 10 years or less. At the same time, authorities
“If you look at the size of the Indian economy today and assuming that the nominal GDP growth will be 7.5%, it will be $2.8 trillion in 2020. Looking at the overall backdrop and policy measures taken by policymakers, it has the potential to be a $5-trillion economy”
ANUBHUTI SAHAY Senior Economist, Standard Chartered Bank “It’s a stiff target. The government will have to make a variety of reforms. Besides, the global environment is not very supportive. This means India will have to do everything on its own”
DK JOSHI Chief Economist, Crisil
will use the Aadhaar national biometric ID system to make sure that owners of dwarf businesses do not attempt to misuse the provisions.
The central government also intends to introduce labour reforms modelled on those carried out by Rajasthan state. The state amended its acts related to factories, contract labour and apprentices in 2014 and has since reaped great benefits in productivity and job creation.
The amendments in effect allow factories with 100 or more employees to operate outside the protection provided under the Acts. Critics have called the new Factories Act anti-labour in that it doubles the minimum requirement for forming a union to 30% of total workers.
Trade unions also allege that factories employing 19 or fewer workers (the earlier number was 10) will not be legally responsible for the safety of their workers on the premises. The amendment also takes away legal protection on hours of work, weekly time off and other rights related to working conditions, they say.
Companies employing up to 300 workers in Rajasthan are now allowed to fire and lay off workers or shut down units without prior government approval. A fired employee can still raise an objection against termination but with a three-year deadline; the older law had no deadline.
The economic survey promises that by deregulating labour law restrictions, the central government will help to create more jobs. It will also recalibrate priority sector lending to ensure young businesses in high-employment sectors have more access to credit.
As well, the government aims to improve the capacity of India’s notoriously sluggish courts to ensure timely disposal of cases relating to contract enforcement. Eighty-percent of all such cases are currently pending in district and subordinate courts. All of these cases could be cleared by filling 2,279 vacancies in the lower courts and 93 in the high courts, the survey said.
While promising economic policy certainty that it says even some major powers such as the United States cannot match, the Modi government also wants to take environmental and water management to the next level, moving on from its Clean India Mission to Beautiful India.
Access to affordable, reliable and sustainable clean energy will be expanded. The government claims to have saved 500 billion rupees and reduced 108.3 million tonnes of carbon dioxide emissions through energy efficiency programmes so far.
India, it says, can become a hub for the production and export of wind power, solar energy and electric cars. But it has a way to go: electric cars account for only 0.06% of all vehicles on Indian roads, versus 39% in Norway.
The government also reaffirmed its commitment to expanding the use of digital technology for transferring welfare benefits, redesigning the minimum wage system, and promoting fiscal development through improved banking regulation and insolvency and bankruptcy laws.